2 The Pennsylvania Health Cost Containment Council (PHC4) is an independent state agency established by Pennsylvania law (Act 89 of 1986, as amended). PHC4 is charged with collecting, analyzing and reporting information that can be used to improve the quality and restrain the cost of health care in Pennsylvania. Table of Contents Introduction...1 Overview...2 Rehabilitation...6 Psychiatric...14 Long-Term Acute...24 Specialty...32 Footnotes and Regional Map...34 Explanation of Terms and Measures...35 Non-Compliant Hospitals/Late Submission The following hospitals submitted their annual financial data and/or the supporting audited financial statements late. Angela Jane Rehab Berkshire Pavilion Brooke Glen Behavioral First Wyoming Valley Kindred/Delaware County Kindred/Heritage Valley Kindred/Philadelphia Kindred/Pittsburgh Lancaster Rehab Hospital Life/Chester County Life/Pgh - North Life/Pittsburgh Penn State Hershey Rehab Select Specialty/Camp Hill Select Specialty/Erie Select Specialty/Harrisburg Select Specialty/York Valley Forge Key Findings The statewide average operating margin for the state s 20 rehabilitation hospitals improved 1.33 percentage points from 8.90% in FY08 to 10.23% in. The statewide average total margin declined 5.79 percentage points from 11.49% in FY08 to 5.70% in. However, the decline in total margin was driven almost entirely by the size of a single rehabilitation hospital s negative total margin (-75.09%). Rehabilitation hospitals had the highest statewide average operating margin among all of the hospital categories. For the fifth consecutive year, the state s 19 freestanding psychiatric hospitals as a group have posted an increase in the statewide average operating margin. The statewide average operating margin grew another 0.23 of a point from 5.96% in FY08 to 6.19% in. After four years of consecutive increases, the statewide average total margin for psychiatric hospitals decreased 1.96 points from 4.55% in FY08 to 2.59% in. The statewide average operating margin for the Commonwealth s 27 long-term acute care (LTAC) hospitals increased 1.15 points from 2.31% in FY08 to 3.46% in. The statewide average total margin increased 0.33 of a point from 2.07% in FY08 to 2.40% in. LTAC hospitals received nearly two-thirds (65.9%) of their patient revenue from Medicare patients during. b

3 Introduction Introduction On an annual basis, the Pennsylvania Health Cost Containment Council (PHC4) has produced a series of financial reports that measure the financial health of Pennsylvania s hospitals and freestanding ambulatory surgery centers. This is the third volume of a three-volume series. Volume One, released in May 2010, focused on the financial health of Pennsylvania s general acute care (GAC) hospitals. Volume Two, released in October 2010, concentrated on Pennsylvania s freestanding ambulatory surgery centers (ASCs). This report, Volume Three, focuses on Pennsylvania s freestanding rehabilitation hospitals, psychiatric hospitals, state psychiatric hospitals, long-term acute care hospitals, and specialty hospitals (non-gac hospitals). Table 1 lists the total number of licensed hospitals and ASCs that operated in Pennsylvania during fiscal year 2009 (). Table 1 Number of Facilities, by Facility Type Number of Facility Type Facilities General Acute Hospitals 171 Rehabilitation Hospitals 20 Psychiatric Hospitals 19 State Psychiatric Hospitals 8 Long-Term Acute Hospitals 27 Specialty Hospitals 5 Ambulatory Surgery Centers 262 Total 512 This report provides an individual profile of each type of provider category for the freestanding non-gac hospitals. The subunits from the hospitals that provide similar care in those categories are also included. For example, the psychiatric subunits of GAC hospitals are addressed in the section on psychiatric care along with the freestanding psychiatric hospitals. The reporting year for the non-gac hospitals in this report is based on each facility s accounting year (fiscal year) that ended during For the majority of non-gac hospitals, the fiscal year is the calendar year ending on December 31, For those hospitals that do not utilize a calendar year, the fiscal year typically ended on June 30, In addition to statewide financial data, this report presents statewide data on utilization and capacity. While the statewide data on utilization generally reflects the overall trends in the level of patient care and staffed beds in Pennsylvania, statewide utilization and capacity data must be viewed as a compilation of often unrelated local markets. For example, the addition or removal of staffed beds at rehabilitation hospitals in one region of the Commonwealth may have little or no effect on the availability of rehab care in other regions of Pennsylvania. Information in this report was derived from annual financial statements and data submissions, as well as quarterly inpatient discharge data supplied by each facility. Every reasonable effort has been made to ensure the accuracy of the information. Each facility had the opportunity to review its data and make changes, if necessary. The ultimate responsibility for data accuracy lies with the individual facility. 1

6 Overview Figure 5 Average Length of Stay, by Facility Type* Figure 6 Average Inpatient Patient Age, by Facility Type* days years GAC Rehabilitation Psychiatric LTAC Specialty 0 GAC Rehabilitation Psychiatric LTAC Specialty ties is more than twice the average age of patients at psychiatric hospitals. Typically, older patients require more resources than younger patients being treated for the same condition. Applying the differences in the average lengths of stay presented in Figure 5 to the variations in the average revenue per day result in large differences in the average revenue per discharge across the different hospital settings. The average revenue per discharge during ranged from $5,714 at specialty hospitals to $39,565 at LTAC hospitals. LTAC hospitals treat complex medical conditions that require continuous care. During, there were 43.3 million outpatient visits reported statewide, of which 2.3 million were from rehabilitation, psychiatric, LTAC and specialty hospitals (Table 4). There is also a wide variation in the average outpatient revenue per visit across all facilities. Like inpatient care, a primary reason for the diversity in outpatient revenue per visit among the facility types is the variation in level of resources provided per visit. A patient may receive care as a series of visits comprised of relatively short treatments (e.g., psychotherapy) in a hospital outpatient setting, while a patient at an ASC may be subject to an entire surgical procedure during a single visit. The average revenue per visit at GAC hospitals reflects reimbursements for a wide range of outpatient services. Only ASCs and LTAC hospitals experienced an increase in their statewide average total margin during. The statewide average operating and total margin for ASCs were the highest margins posted in over ten years. The GAC hospitals operating and total margins peaked at their highest levels in FY07 and declined in both FY08 and. The operating and total margins of LTAC facilities as a group have declined from their peak in FY04, but slight improvements in both were made during. Similarly, the statewide operating and total margins for rehabilitation hospitals have declined from the FY06 peak for total margin and FY05 peak for operating margin. However, only the operating margin for rehabilita- * Excludes State Psychiatric Hospitals 4

7 Overview Figure 7 Total Margin, by Facility Type* 30% 25% 26.26% 20% 15% 10% 5% 0% 5.70% 6.43% 2.08% 2.59% 2.40% GAC Rehabilitation Psychiatric LTAC Specialty ASC tion hospitals improved slightly in. Among the hospital categories, rehabilitation hospitals had the highest statewide average operating margin in. The psychiatric hospitals experienced their highest operating margin in, but their total margin declined after peaking in FY08. ASCs continue to have the highest average total margin among the different health care facility types (Figure 7). Contributing to the difference between the average ASC total margin and the average total margins for the other facility types is that most of the facilities in the largely for-profit ASC sector report their net income on a pre-tax basis. The net income reported for the for-profit hospitals in the other facility categories is reported net of federal income taxes. Among all facility types, GAC hospitals had the highest level of uncompensated care as a percent of net patient revenue (NPR) in, while ASCs had the lowest level. Uncompensated care as a percent of NPR ranged from 0.85% to 2.02% among the various non-gac hospital categories. Figure 8 Percent of Uncompensated, by Facility Type* 4% percent of NPR 3% 2% 2.43% 1.87% 1.60% 2.02% 1% 0.85% 0.43% 0% GAC Rehabilitation Psychiatric LTAC Specialty ASC * Excludes State Psychiatric Hospitals 5

9 Rehabilitation 50 Figure 9 Rehab Discharges by Facility Type 600 Figure 10 Rehab Patient Days by Facility Type thousands thousands FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Rehabilitation Hospitals GAC Rehab Units Rehabilitation Hospitals GAC Rehab Units Rehabilitation During fiscal year 2009 (), there were 20 freestanding rehabilitation hospitals in Pennsylvania that provided care to 52.9% of the patients admitted for inpatient rehab care statewide (Table 5 & Figure 9). The remaining 47.1% received care at the rehab units that operated as part of a general acute care (GAC) hospital. Sixty-two, or 36%, of Pennsylvania s GAC hospitals operated rehab units in. In addition to treating more of the rehab patients in, there were more patient days and a longer average length of stay (ALOS) at rehabilitation hospitals than at the GAC rehab units. The rehabilitation hospitals provided 58.7% of the patient days of acute rehab care during compared to 41.3% from the GAC rehab units (Figure 10). The ALOS at rehabilitation hospitals was 14.9 days compared to 11.8 days at the GAC rehab units (Figure 11). Trends in Rehab The combined number of patients receiving rehab care at both GAC rehab units and rehabilitation hospitals peaked during FY02. From FY02 to, the discharges at GAC rehab units declined 37.1%, an average decline of 5.3% per year. From FY02 to days FY07, the rehab discharges at rehabilitation hospitals declined 27.8%, an average of 5.6% per year, and then increased 5.8% in FY08. The total number of rehab care discharges statewide decreased 0.2% during. However, the number of discharges at the GAC rehab units declined 4.2% in while rehab discharges increased 3.7% at rehabilitation hospitals. There was a net decline of 51 staffed beds (4.0%) at GAC rehab units and a net decline of 27 staffed rehab beds (1.6%) at rehabilitation hospitals in, which resulted in an overall 2.6% decline in the Figure 11 Average Length of Stay for Rehab by Facility Type FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Rehabilitation Hospitals GAC Rehab Units Statewide 7

11 Rehabilitation percent of discharges 40% 30% 20% 10% 0% 4.1% Figure 13 Inpatient Age Distribution at Rehabilitation Hospitals, by Age Group 6.4% 9.3% 15.3% 20.6% 28.4% 15.8% < > 84 Age Group system (IRF PPS) rates. Facilities that did not meet the threshold were to be reimbursed at the lower general PPS rates. Initially, the minimum threshold was being phased-in in annual increments from 50% for cost reporting years after July 2004 to 75% after July However, the federal Medicare, Medicaid and SCHIP Extension Act of 2007 limited the minimum threshold to 60% permanently and was retroactive to cost reporting periods after July Rehabilitation hospitals serve a predominately elderly population; 64.8% of the patients at these hospitals were 65 years or older in (Figure 13). While care for elderly patients dominates the number of discharges at rehabilitation hospitals, younger patients experience much longer stays. During, patients in the under-25 and the age groups had an ALOS of 23.7 and 19.6 days, respectively (Figure 12). In contrast, patients in the age group had an ALOS of 13.8 days. The revenue that rehabilitation hospitals received per discharge and per day varied considerably by payer category (Figures 15 & 16). Part of this variation is attributable to the mix of patients and care covered by the different third-party payers and the variation of costs associated with treating those patients. The variations in the average patient age and the ALOS presented by payer in Table 7 and Figure 14 indicate the differences in the average level of care among the payers. Younger patients are more likely to be admitted for traumatic injuries, such as brain and spinal cord injuries, which typically have longer recovery periods. As a result, younger patients, on average, require longer lengths of stay. Table 7 Average Inpatient Age at Rehabilitation Hospitals, by Payer Payer Average Age Commercial Medicare Medical Assistance Other Statewide days Figure 14 Average Length of Stay at Rehabilitation Hospitals, by Payer Medicare Medicare Indemnity Managed Medical Medical Assistance Assistance Indemnity Managed Commercial Commercial Indemnity Managed Other Statewide 9

13 Rehabilitation FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Net Patient Revenue $512,735 $541,437 $556,241 $562,271 $575,035 $549,165 $514,631 $532,349 $564,962 $584,647 Total Operating Revenue $533,894 $567,296 $606,514 $596,907 $606,827 $583,200 $547,486 $575,710 $600,282 $619,356 Total Operating Expenses $495,548 $532,164 $548,682 $524,222 $540,481 $511,814 $488,781 $523,738 $546,874 $556,021 Operating Income $38,346 $35,132 $57,831 $72,685 $66,346 $71,386 $58,705 $51,972 $53,408 $63,336 Non-operating Income Adjustments* $27,956 ($5,140) ($34,715) ($17,553) $1,174 $4,728 $14,252 $9,319 $18,569 ($29,174) Revenue over Expenses $66,302 $29,992 $23,117 $55,132 $67,520 $76,114 $72,956 $61,291 $71,977 $34,162 *Includes non-operating income, income taxes, and extraordinary items. Table 9 Revenue, Expenses, and Income at Rehabilitation Hospitals (thousands) increased 2.0% from $1,089 in FY08 to $1,111 in. Outpatient and home health care at rehabilitation hospitals generated about one-fifth (19.3%) or $112.7 million of the $584.6 million in total NPR reported by the rehabilitation hospitals for. The statewide average total margin decreased 5.79 points from 11.49% in FY08 to 5.70% in. The decrease in the statewide total margin during was a greater difference than the increase in the statewide operating margin because of the reduction in non-operating income at the non-profit rehabilitation hospitals. Non-operating income at the hospitals is primarily comprised of investments and contributions. The decline The 7.06% average operating margin for the eight non-profit rehabilitation hospitals was 8.24 points below the 15.30% average operating margin for the 12 for-profit hospitals. Investment and other non-operating losses generally drove the average total margin at the non-profit rehabilitation hospitals 5.15 points below the average operating margin to 1.91%. The 11.44% average total margin for the for-profit hospitals, which are subject to income tax, was 3.86 points below the average operating margin as a group. The 1.91% average total margin for the non-profit hospitals was 9.53 points lower than the 11.44% average total margin at the for-profit hospitals. in total margin was driven almost entirely by the size of a single non-profit rehabilitation Figure 18 hospital s negative total margin Operating and Total Margins at Rehabilitation Hospitals (-75.09%). However, all six nonprofit 16% rehabilitation hospitals that 12.75% 12.80% 11.64% 12.18% 12% 10.93% reported non-operating income 9.54% 9.28% 12.24% had significant non-operating 10.89% 10.72% 10.32% income losses in. In FY08, 8% 6.19% these six hospitals combined 7.18% earned a positive $26.1 million 4% 5.20% 3.87% in non-operating income. In, these hospitals combined 0% reported a negative $20.0 million in non-operating income % 9.03% 8.90% 10.23% FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Operating Margin Total Margin 5.70% 11

16 Psychiatric Highlights For the fifth consecutive year, the 19 freestanding psychiatric hospitals as a group have posted an increase in the statewide average operating margin. The statewide average operating margin grew another 0.23 of a point from 5.96% in FY08 to 6.19% in. After four years of consecutive increases, the statewide average total margin for psychiatric hospitals decreased 1.96 points from 4.55% in FY08 to 2.59% in. The Commonwealth, through the Pennsylvania Department of Public Welfare (DPW), is the largest provider of psychiatric care in the state. DPW s eight state psychiatric hospitals provided 28.9% of all patient days of psychiatric care during. In addition, the Medical Assistance (MA) program provided 58.7% of the net patient revenue received by the 19 psychiatric hospitals in Pennsylvania during. Of all patients receiving inpatient psychiatric care at GAC psychiatric units, 24.5% were MA participants. Psychiatric Inpatient psychiatric care in Pennsylvania is provided by state psychiatric hospitals, freestanding psychiatric hospitals, general acute care (GAC) hospitals, specialty hospitals, and long-term acute care (LTAC) hospitals. During fiscal year 2009 (), there were 19 freestanding psychiatric hospitals in Pennsylvania that treated 36.5% of the patients admitted for inpatient psychiatric care statewide and provided 31.0% of the total patient days of acute psychiatric care (Table 10). The average length of stay (ALOS) at psychiatric hospitals during was 13.1 (Figure 21). However, excluding their long-term residential and drug and alcohol (D&A) care programs, the ALOS was 10.8 days. Six of the psychiatric hospitals provided residential care, and three provided inpatient D&A care (Table 11). Figure 19 Psychiatric Patient Days, by Facility Type Figure 20 Psychiatric Discharges, by Facility Type State Psychiatric Hospitals 28.9% GAC Psych Units 33.7% Psychiatric Hospitals 31.0% Specialty & LTAC Psych Units 6.4% State Psychiatric Hospitals 1.0% Psychiatric Hospitals 36.5% GAC Psych Units 57.1% Specialty & LTAC Psych Units 5.4% 14

19 Psychiatric Figure 21 Average Length of Stay for Psychiatric by Facility Type* days FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Psychiatric Hospitals Specialty Psych Units Statewide GAC Psych Units LTAC Psych Units Residential care is typically a less intensive treatment that often follows acute psychiatric hospital care. Residential treatment is often utilized when community or family-based options are not appropriate for the patient. During, the ALOS at the psychiatric hospitals residential programs was days. The state psychiatric hospitals provide long-term inpatient care for individuals that require intensive treatment. There were eight state psychiatric hospitals in Pennsylvania during. Although the state psychiatric hospitals provided 28.9% of statewide psychiatric patient days during, they only Figure 22 Age Distribution of Inpatient Psychiatric Patients*, by Age Group 25% percent of discharges 20% 15% 10% 5% 0% < >84 Age Group Mental Disorders Drug & Alcohol Disorders * Excludes State Psychiatric Hospitals Mental disorders include all patients whose principal diagnoses were grouped into MDC19, and drug and alcohol disorders include patients grouped into MDC20. 17

20 Psychiatric discharged 1,257 patients, which is 1.0% of the total psychiatric discharges from all facilities. The ALOS at the state psychiatric hospitals is well over one year. In contrast, psychiatric units that operated as part of a GAC hospital provided relatively short-term acute psychiatric care with an ALOS of 9.1 days during. Ninety-three, or 54.4%, of the GAC hospitals in Pennsylvania operated psychiatric units during. These GAC psychiatric units treated 57.1% of the total patients admitted for inpatient psychiatric care statewide and provided 33.7% of the total patient days of psychiatric care during. Four specialty hospitals in Pennsylvania provided some form of psychiatric care. Two of the hospitals reported providing acute psychiatric care, which represented only 15.0% of the total psychiatric care provided at specialty hospitals. The remaining 85.0% of psychiatric care offered at specialty hospitals was provided by D&A programs at three hospitals. The 98,880 inpatient psychiatric care days at specialty hospitals represented 4.9% of the statewide psychiatric care patient days during. Three LTAC hospitals provided 29,251 acute psychiatric patient days, or 1.5% of the statewide inpatient psychiatric care during. This care represents only a small portion of inpatient psychiatric care in Pennsylvania, but it represents 10.1% of the total patient days provided by all LTAC hospitals. Trends in Psychiatric Over the past ten years (FY00-), statewide psychiatric patient days in all hospital settings declined an average of about 1.8% per year. The 3.6% decline in patient days during was driven, in part, by reductions in utilization at the state psychiatric hospitals. The Pennsylvania Department of Public Welfare (DPW) reported that the patient population at the state psychiatric hospitals declined by 97 patients, from 1,710 in July 2008 to 1,613 in July 2009, and that the patient days of care fell by 9.3% or 59,760 days during. Despite the 2.3% decrease in statewide psychiatric patient discharges provided in all hospital settings during, there was a 7.2% increase in the total patient discharges reported by the psychiatric hospitals. Because the 7.2% increase in patient discharges was greater than the 5.7% increase in patient days, there was a slight decrease in the ALOS from 13.3 days to 13.1 days at psychiatric hospitals. The GAC psychiatric units reported a decline in total patient days and discharges for the fifth consecutive year. Total patient days for the GAC psychiatric units declined 2.8% or 19,717 days, and discharges fell 4.8% or by 3,761 discharges during. Inpatient psychiatric care has a younger age distribution than other types of hospital-based care. The average age of inpatients treated at psychiatric hospitals was 31.5 years compared to a mean age of 52.7 years for all inpatients at GAC hospitals, 67.8 years at rehabilitation hospitals, and 68.2 years at LTAC hospitals. In, discharges among patients age 15 through 54 made up 75.0% of inpatient psychiatric discharges excluding state psychiatric discharges (Figure 22). Psychiatric Hospitals Financial Profile The Commonwealth, through DPW, is the largest provider of psychiatric care. As previously mentioned, DPW s eight state hospitals provided 28.9% of all patient days of psychiatric care during. In addition, the Medical Assistance (MA) program administered by DPW provided 58.7% of the net patient revenue received by the 19 psychiatric hospitals in Pennsylvania during (Figure 23). MA participants 18

21 Psychiatric Figure 23 Net Patient Revenue at Psychiatric Hospitals, by Payer Commercial 19.9% Other 6.0% Medicare 15.4% Medical Assistance 58.7% also comprised 24.5% of all patients that received inpatient psychiatric care at GAC psychiatric units in. DPW also sponsors psychiatric care in a variety of other settings. The Commonwealth directly underwrites 79.2% of the cost of the care provided at the state psychiatric hospitals. Of the remaining 20.8% of total expenses covered by third-party payers, patients and other sources, 11.6% are covered by MA; 5.8% by Medicare; and 3.4% are covered by private insurance, individuals and other sources. As a group, psychiatric hospitals experienced a long history of negative or very small positive statewide average operating margins prior to FY05 (Figure 24). However, during the two-year period FY05 and FY06, they experienced a dramatic 9.08-point improvement in their combined operating margin. The statewide operating margin increased 4.99 points during FY05 and an additional 4.09 points during FY06. The statewide operating margins improved because operating revenue grew a total of 11.7% during FY05 and FY06 while the total growth in expenses was held to 1.9% over the twoyear period. Since statewide utilization levels at the psychiatric hospitals operating during FY05 and FY06 remained relatively constant, the growth in operating revenue was primarily driven by increases in reimbursement rates. The hospitals reported a 13.0% increase in average revenue per day over the two-year period, 5.7% during FY05, and 6.9% during FY06 (Table 12). Figure 24 Operating and Total Margins at Psychiatric Hospitals 16% 12% 8% 4% 0% -4% -8% 6.19% 5.28% 5.69% 5.96% 2.84% 1.48% 0.59% 4.55% 3.80% -1.55% -1.27% 3.57% 2.59% -2.79% 1.19% 0.27% 0.04% -2.34% -3.80% -4.36% FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Operating Margin Total Margin 19

22 Psychiatric While not as large as the increases in FY05 and FY06, the statewide operating margin at psychiatric hospitals has increased slightly every year since then an average of about 0.30 of a point per year. The statewide operating margin of 6.19% is the highest reported in a decade. The statewide operating margin continued to grow because, as a group, the growth in operating revenue outpaced the increase in operating expenses. Statewide operating revenue increased 9.4% during while expenses rose 9.1%. However, psychiatric hospitals statewide average total margin decreased 1.96 points from 4.55% in FY08 to 2.59% in. This decline is the first drop after four years of consecutive increases. The disparity in the average operating and total margins between the for-profit and non-profit psychi- atric hospitals continued in. The 12 for-profit hospitals posted an average operating margin of 12.45% compared to 5.17% for the seven non-profit hospitals. Since the for-profit hospitals are subject to income taxes, the statewide average total margin for the for-profit hospitals was 6.58%. Among the psychiatric hospitals, the average revenue per discharge of $7,112 (Figure 25) was similar to the FY08 average of $7,116. The average revenue per day for was $543 (Figure 26), compared to $536 in FY08. Patients covered by commercial indemnity and commercial managed care plans had a shorter ALOS than those covered by other payer types (Figure 27). Figure 25 Average Net Inpatient Revenue per Discharge at Psychiatric Hospitals, by Payer Figure 26 Average Net Inpatient Revenue per Day at Psychiatric Hospitals, by Payer $12,000 $900 $9,000 $6,000 $9,358 $7,706 $5,319 $7,613 $6,243 $5,565 $8,976 $7,112 $600 $697 $699 $682 $553 $484 $642 $421 $543 $3,000 $300 $0 Medicare Medicare Indemnity Managed Medical Medical Assistance Assistance Indemnity Managed Commercial Commercial Indemnity Managed Other Statewide $0 Medicare Medicare Indemnity Managed Medical Medical Assistance Assistance Indemnity Managed Commercial Commercial Indemnity Managed Other Statewide 20

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